Closing Big Deals using 1031s and TICs

Closing Big Deals using 1031s and TICs

Audio Only: Making Money in Multifamily Real Estate Show

by Dave Morgia | Patrick Grimes

Transcript

Narrator:
Welcome to the Making Money in Multifamily Show, where we discuss everything to do with multifamily real estate investing. We believe it’s the best way to gain financial freedom and build lasting wealth. This is where you’ll find the best information and practices to help you succeed in your real estate business, whether you’re already experienced or just starting out. Here’s your host, Dave Morgia.

Dave Morgia:
Hello, listener, and welcome to the show. I’m your host, Dave Morgia, and I’m excited to bring on today’s guest. Today, I have Patrick Grimes on the show. Patrick is the founder and CEO at Invest on Main Street. He has over 14 years of experience in the real estate business. That includes over $146 million portfolio across over 1,900 units in multifamily across the US, primarily in Texas and the Southeast US.

Dave Morgia:
He co-sponsors syndications. He focuses on pretty much the whole plethora, underwriting, due diligence, all the investor side of things, including pitch decks and raising equity. 20 million invested through his raising of funds. And just a quick mention here for Patrick, he is the inductee into the Forbes Real Estate Council. He has authored a couple, actually, probably several articles at this point, Patrick. But yeah, I would love to pick at that maybe first, get into your background and highlight that Forbes recent article you mentioned right before we started recording.

Patrick Grimes:
Well, great, Dave. I’m happy to be on. We’ve obviously been in the same circles for some time and I’ve spent most of my career in multifamily keeping my head pretty close to the grinding wheel and just knocking out deals and getting it done. And that’s probably my engineering, high-tech background. Right? I have two master’s degrees too, so I tend to just be a hard worker, but it’s great to finally be getting out there and on podcasts and sharing my story and what we’re doing.

Dave Morgia:
Yeah. So like I mentioned, the Forbes Real Estate Council, just inducted. And you mentioned before we started hitting record here, a couple articles that you’ve written and one was actually, I guess, relatively recent, maybe even this week. So you want to just highlight what the focus has been in that space in Forbes and what you’ve been just focusing on when it comes to investing in syndications?

Patrick Grimes:
Sure. Well, first, let me say one thing, just a little freebie to hang into the end. I do have an Amazon number-one bestselling book. At the end, I’ll share with your listeners how they can potentially get a free signed copy of that shipped to them, hard copy. But yeah, I can answer your question. So about, I’d say, eight or nine months ago, I was actually approached by a partner and was a recruiter for the Forbes Business Council that I was invited into it. And I didn’t know what it was at the time.

Patrick Grimes:
At the time, I was traveling, living in Oahu, back and forth between the Southeast and Texas, constantly looking at properties and doing due diligence. I was like, “I don’t have time to go be writing and getting my name out there. Let’s just get the work done.” I kind of shined it on and it wasn’t until about third quarter last year that I started getting more and more feedback from people saying, “Hey, you should be doing one to many. You should be talking to more people. You’re doing a lot of great things.”

Patrick Grimes:
We just had an exit where we made $10 million in nine months in Jacksonville, Florida, and I got to get that story out. So I called up the Forbes. I was like, “Hey, is that still a thing?” And they’re like, “Absolutely. Here’s the application and there’s a selection committee.” And then once you get invited, I guess that’s step one. And then there’s step five. And then all of a sudden they called me and said, “Hey, yeah, you’re a member.”

Patrick Grimes:
Now I’m currently working with the Forbes thought leaders in various businesses that help to answer the expert panel questions that are offered. I’ve been in a couple expert panels and I’ve been authoring different texts or articles. And essentially, they come to say, “Hey, what are the biggest challenges in your space? What are the things that people really want to know?” And one of them that’s very misunderstood in our space is doing a 1031 exchange in multifamily syndications. There’s a lot of misinformation out there, whether it’s possible or it’s not possible, how it works.

Patrick Grimes:
When I explained that to the editor, they did some reading. There’s nothing like that anywhere on any of their knowledge base, so they were very excited about it. So I wrote back and forth with them on that and had some peer reviews on it. We got published, very excited about that. But I think the topic is a great one to maybe kick off with, because I talked to a lot of investors that were like me. They bought a bunch of single-family homes, maybe renovated and maybe refied them and then kept circling. A.

Patrick Grimes:
Obviously, I was doing machine design automation and robotics, but meanwhile, I was moonlighting these single-family homes. Every time I did one, the management got to be more of a headache and I could only do probably one or two at a time before it was just too much for me to do my high-tech job. I loved the high-tech job. It was very cognitively rewarding, but it just didn’t offer the future that I wanted. So, go ahead.

Dave Morgia:
Oh, no. I was going to say, yeah, it’s funny, just the time intense crunch it can be going small. Then just jumping right into the bigger stuff, it can be really ironic partnering with a bigger team and dividing and conquering, obviously, the deals that you’re looking at now. So just funny commentary.

Patrick Grimes:
Yeah. I a hundred percent agree. I had to do every single job myself, some that I was really passionate about, some that I was really good at, and a lot that I didn’t want to do, I wasn’t passionate about and I wasn’t real good at. And the one size fits all is a very uncomfortable shoe to wear. So getting a team together where they’ve been doing it for decades and they’re passionate about this niche and that niche and this niche, in a multifamily they’re profitable enough to allow for lots of very talented people to fit into a team. And that serves the investors better when you’re investing with somebody else’s money. So, yeah.

Patrick Grimes:
I think with the 1031 exchange, it was just a natural progression because I’m doing that with my own single-family portfolio. And I have investors calling me saying, “Hey, can I sell off these? I’m trying to retire, but I’ve got this portfolio that’s demanding all my time. Can I trade it into a multifamily apartment, into one of these multifamily passive syndications?” The answer is yes and no.

Patrick Grimes:
I explain, “You can, but you can’t join this syndication itself. We set up a little side entity, the property on the org charts here, and here’s this syndication. And it owns a percentage of the property. Then you would own, on title, your own percentage of the property based on how much equity you put up. And then we give you the returns similar that you would in this syndication, but you can’t be necessarily passive because in that case you would potentially need… It’s one of the requirements that you have to be active, you have to be on title and an owner.” But we do all the heavy lifting. There really isn’t many jobs.

Patrick Grimes:
I mean, with the portfolio we’re doing right now, 772 units, seven properties. We have three area managers, a regional manager, and we have on-site property management, maintenance. And so what else? I mean, all you really get is reports, right? Technically, you’re active. So we set you up and we put you in these little tenancy in common structures, which is just a joint venture sort of setup that has been around for as long as real estate’s been around. I mean, people have been buying properties together forever. So it turns out to be a really simple way. And as long as they’re investing enough, because it’s a little more costly for us.

Patrick Grimes:
I’ve multiple times now been able to bring in a husband and wife who says, “Hey look, can we move this into there? We’re just tired of it.” And then not only do they get to move it in, but they get the better tax advantages and they get the returns. We find the deals. They don’t have to. We execute the business plan efficiently, which they don’t have to worry about. But then we refinance the profits usually in year three back to them, and they get the capital back. But they’re like, “Well, I don’t want to go find another deal again.”

Patrick Grimes:
So instead of trading off, “Hey, let’s stop retirement.” Or, “I have a job, so I have to trade off less family time, less time with my friends and less time with my hobbies.” Well, just give it back to us. We’ll keep the velocity of the capital high by reinvesting it into another deal that we found, which takes 200 to 300 underwritten before we find one. So the velocity of their capital keeps going up. Meanwhile, they get to focus on their life.

Patrick Grimes:
I’m passionate about helping people like that. Right? And even, say, you don’t have properties, and you want to invest a large number, like a million dollars. But you want to be able to 1031 it wherever you want forward, you can still do the tenancy in common, right? We can set you up. You don’t have to be in the syndication, but if you do join this syndication as a limited partner, we can 1031 you forward with us to our next deal. You have to come with us if you’re not in your own tenancy in common. If you’re in our entity, you have to come with those or we’ll pay you out. Right?

Patrick Grimes:
That’s the kind of topic. There’s a lot of confusion, but it’s actually fairly simple and great tools for people to build their wealth and take advantage of what’s the most powerful investing tool available to Americans. And that’s the 1031 exchange.

Dave Morgia:
Yeah. I guess my first question before we dig into maybe the mechanics of the tenant in common structure, you mentioned 1031-ing the entire deal into the next one, even on the LP side. Is that something you guys are doing is exiting as an entire property level entity, 1031-ing into some more properties? Because you don’t see that a ton of time in the syndication space. Usually, it’s a refinance or sell type of situation.

Patrick Grimes:
Yeah. Just to be clear, the refinance we’ll still do, but that’s not a 1031 because that’s not a taxable event. Right? But on a sale event, you really got to talk to your sponsor if that’s something you want to do. A lot of the time sponsorship teams you see in this guru space, they’re just kind of patched together with some partners that are going to do this deal together. They may not do deals moving forward together. But if you find a firm that’s, “Hey, we’re doing deals, we’re established. And this is part of our plan because I’m investing heavily. I’m signed on the loans.”

Patrick Grimes:
It requires a sponsorship team to have 10 to 15% of the equity. We’re the second biggest investor. You’ve got the lender and you’ve got the sponsorship team, typically. Or you have maybe one other pref equity firm or something, but we’re huge investors usually way deeper in than the passives. But yeah, so we want the same tax advantages. And so if you find the right sponsor, because it’s up to them and they’re forward thinking, and you ask them in advance to make sure that’s part of their plan, then yeah.

Patrick Grimes:
So when we bought Canopy Creek in Jacksonville, Florida, in March last year and we got it under market, unrenovated units, great basis. We held it for nine months before we were already getting our year five sales price offers unsolicited.

Dave Morgia:
Wow.

Patrick Grimes:
And then we sold it. We bought it for 27 million, sold it for 37 million. I made a huge return back to our investors, but our investors say, “Hey wait, can you just roll that forward?” Right? Only three of like 40 investors or so actually wanted out, and each of those did it begrudgingly. One of them had a trust issue they had to exit from. Another one had-

Dave Morgia:
More personal.

Patrick Grimes:
… yeah, had a liquidation event for something, for another business they had that wasn’t working. And they were all begrudgingly cashed out, which triggers a taxable event. But the rest of them, 10-plus million actually, were all 1031 exchanging into a 340-unit in Houston, another emerging market. We bought under, it was destabilized, 78% occupancy when we bought it. And incredible after post, not only in the lease, but then post renovation, we got some incredible upside. We’re looking at trading it and we see a bright future for trading it up again. It’s definitely a strategy.

Patrick Grimes:
Now, again, it’s important to know that if you vested as a limited partner, you’re passive in the deal. You’re also passive on the exit and you don’t get to choose where. If you want to go somewhere else, you have to cash out. But if you come in as a tenants in common, you’re just partner on title. Right? And so this syndication can go this way and you, you’re tenants in common, can go wherever you want.

Patrick Grimes:
So if you bring in 1031 funds or bring in a large lump sum that’s over say a million or so that the lender’s like, “Okay, it makes sense why this guy would want to partner or not join the syndication.” Then you have the freedom to join with us or go your own way on exit. So those are the things that a lot of people don’t know.

Dave Morgia:
Yeah. I guess we’re kind of flirting with the mechanics of the TIC structure. Just for the listener, if you are listening only and there’s no video, essentially what you’re explaining, Patrick, is you have some type of partnership that’s at the same level as the LP syndication level. So it wouldn’t be under that umbrella. It would be basically tangential to it at that same kind of level of the hierarchy of the company formation, which I think, like you said, is important, right? It makes it so you’re a true partner versus enveloped into the deal at the lower level.

Dave Morgia:
So getting into, I guess you mentioned way earlier, maybe a million dollar mark was where you start to get interested to do the paperwork and all the hassle to bring in someone that’s doing a 1031 via a TIC. So what is that number if you have a hard and fast rule, and why do you have a number in mind because of all of the headaches? What does it really entail to make it worth your while to do all of this?

Patrick Grimes:
Yeah. So first of all, I’d like to encourage your listeners, if you’re interested, to go to investonmainstreet.com. And where we have Learn, click on 1031 exchange, because we have a… Not only if you Google, Patrick Grimes Forbes, 1031 exchange, you’ll see this article I wrote for Forbes, but I have a much more comprehensive white paper on the topic with graphs and pictures. And it’s a infographic kind of set up that makes it very simple. Also, you can set up a strategy meeting with me. I’d be happy to have that conversation with you.

Patrick Grimes:
But the coming into a TIC structure is more costly, right? Because if you just join the syndication, well, we already paid the money to write the private placement memorandum, to get the securities offering filed. So it’s essentially that next $100,000 investment, that’s free. There’s no additional cost for that, right? But if you want to come in and you want to partner with the syndication, well, that’s a new legal entity. Because you’re not passive, the lender wants to know who you are. So they’re going to want to underwrite you. You’re going to have a personal financial statement, schedule of real estate owned, not complex. I mean, I do it because I’m signing on, probably half the deals I’ve done, I’ve been a key principal, a loan guarantor.

Patrick Grimes:
They’re nonrecourse loans, but that’s part of what I offer as partner co-sponsoring these syndication deals, but I do it all the time. And once you do it once, it’s just small tweaks each time. But you do have to do some of that. And then once the… there’s costs associated with the lender. There’s costs associated with the attorney to put the agreements together. There’s time to get through the agreements. And then there’s ongoing accounting.

Patrick Grimes:
So oftentimes, syndicators are like, “Ah, that’s just a headache.” Also, since you’re not passive and we can’t sign an agreement saying you don’t make any decisions or else it might disqualify your 1031 exchange, we’re taking a little bit of a risk bringing you in. We have one big investor, which is a syndication. They’re going to insist on doing everything according to the plan that’s in the offering memorandum. We can’t deviate from that. Even if you wanted to vote, you couldn’t. The Securities and Exchange Commission’s requiring us. We truck along to that path. So we’ve got to find the right personality. Truly is, “Hey, I’ll jump on your bandwagon. I’ll let you guide the bus down the road.”

Patrick Grimes:
So when all those pieces fall, the lender’s willing to let them in because they don’t have a bankruptcy. They can put the documents together. It only takes a couple hours, and we do all the agreements. Then yeah, we’re kind of… I’ve seen some deals where it doesn’t make sense if they’re coming in under a million, right? Because we’re raising $32 million, and you can’t have 32 part owners that are all active in decisions. Even though we’re saying, “Hey, you’re not passive legally, but you’re not going to make the decisions or do all the heavy lifting,” the lender looks at it and goes, “Hey, that doesn’t make any sense. Right? Why would you- ”

Dave Morgia:
Love to see 32 different groups be active on a deal.

Patrick Grimes:
Yeah. And I talked to an older investor actually, and I was just eating lunch with him out in California. And he told me that used to be how things worked. He said he did a tenants in common, because he’s talking about 1031-ing into one of my deals, a hotel actually. And he said he actually did a deal where they had tenants in common one, two, three, four, and each of the individual LLCs were anonymous. So they didn’t know all the investors that were in all the tenants in common, but there was over 30.

Patrick Grimes:
That’s why I brought that up. Because it turns out that used to be the way, but now lenders just, nobody wants that. Syndications are the way to do it. Get a couple active and the rest are passive. Right? So that the lender only cares about the people making decisions, really. Right? It’s better for them. So four to eight partners is in the high end of the range, right? So that’s really where you got to worry a little bit there from what the lender might observe.

Patrick Grimes:
You get into a deal where the equity is small enough maybe, and you’ve already got a 1031 put together. Maybe you can do 500,000. Most syndicators are just saying a million is the minimum. If you go less though, some people will say, “Well, the costs are so high that it will eat into the other investors’ profits. And if I can raise it in the syndication, then why would I take your funds?” Right? Because it just hurts people. So some syndicators are saying, “Hey, I’ll charge you two or four.” Or I’ve even seen somebody charge 20,000 to an investor who wanted to bring 350,000. That’s so it’s not a loss for the rest of the passive investors.

Patrick Grimes:
They have a wait list for the deal, but the heart goes out to these 1031 guys, right? Because they’re saying, “Hey, because you did three refinances in your last property, all of that might disappear in taxes, all of it. Right? And so you actually don’t get anything in sale.” And I’ve heard that story from an investor that had a property for 20 years, kept refi, refi. Every single penny was going to go away at sale. He was like, “Hey, I’ll just put up the cash. It’s a lot cheaper for me to make it not a loss for you or your investors to help cover your cost.” So there’s some things that we’ve kind of negotiated. It’s a win/win, but it’s really about who and the relationship with that investor and each specific situation.

Patrick Grimes:
That’s why I have strategy calls. Right? On my website, I give a 30 minute call and we get to know each other and talk about your situation. We actually have a contractor in Invest on Main Street I’ve specifically brought on who has a side business or has a primary business as a 1031 intermediary. But because I bring him on to facilitate, sometimes he is the intermediary, sometimes he’s not. I bring him on to facilitate this because many intermediaries really don’t care so much. They only make like $800, $1,000. It’s a huge hassle, so it’s kind of a dying business and there’s really not any money in it.

Patrick Grimes:
They don’t have experience in multifamily syndications. That’s the problem, and how all that works out. One of my partners said that a 1031 intermediary didn’t wire funds until two hours before the end of the day at the day of closing.

Dave Morgia:
Man, those are some manic phone calls.

Patrick Grimes:
Yeah. So there’s some vetting we have to do there. Right? And I have another investor who’s worth like $500 million. His intermediary is a guy who he went to high school with and doesn’t have an email or doesn’t check his email and doesn’t have a mobile phone. And he goes, “Oh, that’s all right. I just pick him up and we just go to golf and then I take him to the bank. We wire the funds.”

Patrick Grimes:
I’m like, “This sounds like a freaking nightmare.” And he goes, “It sounds like a nightmare, but I’ve done this with hundreds of millions of dollars.” And I’m like, “Okay.” But see, it’s just a wide range of things that happen out there. So we do have the right people on staff that are paid by hour to make sure that you get the right education, that you get the right answers to the questions that you have.

Dave Morgia:
Yeah. I agree 1000%. It has to be not just a 1031 expert. It also has to be someone who has the familiarity with syndications, which in this space, from my experience, is not a high tally of 1031 stewards, right? There’s, like you say, probably plenty that know how to go trade one for one, property for property, but to get into the niche of investing in a TIC, not necessarily everybody knows how to get that game done. Because like you say, a lot of 1031 owners are probably just local owners trying to invest into the next property in their area, that type of thing. They just have the local guy, pretty much like the guy you said that he’s going out to golf with. So it’s much different than investing long distance nationally or even in these TICs and syndications. So yeah, very insightful.

Dave Morgia:
Getting into, I guess, more on the investor side of things, because from your perspective as a sponsor, you’re really massaging, taking care of two lanes of investors. From the TIC’s side of things as the 1031 owner, you’re only seeing the conversation with yourself and what needs to get done to make sure that I’m allowed to participate in the deal as a 1031 owner. So what is it after, say, your discovery call that I need to prepare for to make sure that this goes smoothly for you so that we can do it again the next time?

Patrick Grimes:
Yeah. Well, from the syndication side and then I’ll show how they overlap. With my partners, we put like 200 to 300 offers out before we get a deal. But that means we’ve probably flown to a dozen properties and done due diligence and then come back and tried to negotiate what they didn’t tell us was there. By the time we actually get a LOI, due diligence, purchase and sale due diligence done, final negotiations and hard earnest money is up and we’re on a race to close, typically you have like 30, 45, maybe 60 days at max at that point. Then by the time you actually do a webinar and then put this pretty deck together and present it, oftentimes you only have 30 days to actually get your funds in the door to close.

Patrick Grimes:
Well, if you’re trying to sell a property, it takes you 30 to 60 days, depending upon the kind of asset, to get it on the market and get it sold. And you don’t have time. So it’s a little bit of a chicken before the egg thing. And some things we can predict, like we knew we were selling this asset in Jacksonville and we needed to place it. And my partners, we underwent a big effort to find the next asset in place. So we told them, “Hey guys, anybody wants a 1031 exchange? We’ve got 10 million coming in here. We can tack on some more, move it in.”

Patrick Grimes:
But a lot of the times you just got to get on the call with a sponsor and you’re going to have to have this conversation, and I have it. “Hey, these are the deals that I have going on in the future. And this is the general return profile of all my deals and how things work. And you’re going to need to know in advance that it’ll be somewhat like this. It may be in two or three markets.” But that might be all you get before. You’re like, “Okay, that’s good enough for me to go ahead and put my property up for sale.”

Patrick Grimes:
Or I get the call, “Hey, I just sold, funds are with the intermediary. I got to place it immediately.” Because at that time they have 45 days to identify, right? And then it’s like, well, okay, what do I have under contract that I can get them into a TIC? Because in a TIC structure, you have to submit your paperwork to the lender. Well, that goes with the loan application, which is 30 to 45 days to close.

Patrick Grimes:
So if you’re coming to me and you have to identify within 45 days, you’re trying to see if I have this narrow window, I’ve got a deal that I haven’t already filled it full of TICs or that I’ve submitted a loan app that I may have to submit a revision to, which may delay the closing, right? Can be expensive or you lose the deal over, delay them, at least giving me the green light to close the lender, or I’ve got to get you in the first time, which means now you got to rush real quick to get all your statements together.

Patrick Grimes:
That’s why inside the PDF that we have, the investonmainstreet.com/1031, we have the guide, the ultimate guide to 1031 exchange in a multifamily syndication. So there’s no surprises, right? We even have case studies in there of how all that timing works out. And it’s just a matter of giving us a call and we’ll get you going. It really isn’t as complicated. It’s just, you have to be prepared in advance for it.

Dave Morgia:
Yeah. It’s more like prepare, prepare, prepare, and then execute. You know, you got to be ready for this 45-day window before you want to actually execute in the window. Because like you say, it’s very like chicken or egg, catch 22. So you got to know well ahead of time what you’re going to do when that clock starts, because otherwise, your clock and their clock is never going to line up and it just won’t work out. Very, very tricky.

Patrick Grimes:
Yeah. We’ll help you too. There’s a funny trick that we actually got played on us, which we learned a little bit the hard way. But we’re closing this month on 442 units, and I’m registered as a Reg D 501(c), which means I can talk about my investments. Right? A lot of the other sponsors of 506(b)s, which means they have to be behind closed doors and we have to have a relationship and all that. But I can be forward thinking, I mean, forward facing. I can talk about it, which is what I prefer. Right? So that’s maybe just to preface that.

Patrick Grimes:
But yeah, so we did this 440 units in Northern Carolina, two property portfolio, amazing deal. Owner was off market. Owner is a retail holder and they bought that as diversification, but their a retail-focused developer. So they really had no idea and really wasn’t their thing. And they didn’t really focus on it, which is perfect for us, unrenovated units that were not meeting even the unrenovated market rents.

Patrick Grimes:
So we bought it below market. We can bring it up unrenovated to market and then we can renovate the units for even more upside. It’s perfect, right? They weren’t slumlords, so they kept up the big ticket items. It’s just a matter of us doing a rinse and repeat strategy. Right? Great property, got it at a discount. Did all the due diligence. Got ready to close right before the end of the year. And wouldn’t you know it, the guy pulls out a trick that he had in the purchase and sell agreement and says, “Hey, I have something right here that says, I can delay closing if the property I identified to 1031 into has a hiccup.” And he did.

Dave Morgia:
Oh, man.

Patrick Grimes:
So we had to call our investors and be like, “Oh shoot, we saw that.” But it’s not that often that people had actually pulled that, but still, it’s still an amazing deal, great buy. And we still want to hang onto it. We’re still closing on it, but we’re actually closing on it on the seventh. So it’s actually two months, I mean, quite a bit of time delayed on it, and it’s still an amazing deal. We did move capital to other deals that were closing so they could take advantage of the cap through the tax advantages.

Patrick Grimes:
I mean, something to keep in mind though is if you plan right and you have the right people on your team rooting for you, then we can help you put things like that in. Right now, it’s a seller’s market in a lot of places. So if you put little clauses in there, like I have the right to delay this, then you won’t come to me like, “Oh shoot, I don’t have any recourse. I’m closing on this date and blah, blah, blah.” Well, if you plan ahead and we have a conversation, maybe you’ll have a little more flexibility to make sure it all pans out.

Dave Morgia:
Well, and you went to where I was going to go next, is you have to understand when you’re 1031-ing, it may be a seller’s market or a buyer’s market, but it really kind of doesn’t matter because you’re doing both sides of the coin, one of each. So in this instance, in today’s market, you would call it more of a seller’s market, lower supply, higher demand. But that means on your sale, you can be the strict one. You can be the one with the terms, kind of like you got stuck with on that deal.

Dave Morgia:
I’m glad it’s working out obviously, but that was the seller understanding that he can be a little bit firmer on the negotiations on his sale because he needs a certain amount of things to go the right way for him to be able to perform. So just keep that in mind. It’s not like it’s a wrong time in the market to 1031, because you’re literally doing both sides of the coin. So it kind of sucks on one side. You can make it a little more in your favor on the other.

Patrick Grimes:
Exactly. And I would say, don’t be scared to put those kind of clauses in the agreements. Brokers and realtors, they’ll scare you because they want it to close. They want to get paid. That’s what they care about.

Dave Morgia:
Fee based, yep.

Patrick Grimes:
But at the end of the day, if you’re trying to defer 300,000 or 500,000 in capital gains, then put a clause in there so you can get out, right? Do it for yourself. Don’t close for a favor to your broker and then risk losing a significant amount in taxes.

Dave Morgia:
Yeah. Patrick, I think we’ve covered a good gamut. I would say probably the top couple things to consider are prepare, prepare, prepare, and then just make sure you have a good intermediary that understands what you’re trying to do in the space, understands what the TIC structure is and has done it before and has systems, unlike people that might be on the more local level just doing 1031s in their local area, not really focusing on anything outside of that.

Dave Morgia:
Is there anything else that you would stress in this timeline if you’re researching this or discovering it for the first time?

Patrick Grimes:
Well, I know there are some people out there that say, “Well, I could never get to… I have like 10 single-families and I’ve got to sell them all at market rates. And that means I have to get them vacant. I have to fix them up, stage them, and sell them.” I was like, “Okay. But if you do one at a time, that’s not going to be enough to trade up, right?”

Patrick Grimes:
They’re like, “Well, I got to get my highest price for it.” Well, you’re also getting your worst possible scenario tax burden. Right? And if you sell them as a portfolio occupied to another investor, maybe you’ll lose 5%, but you’ll gain 30% in tax advantages. And you’ll get more flexibility because you’ll work with a more sophisticated buyer that’ll allow you to put the necessary terms in there so that you’re safe. And you won’t have to worry about the timeline because they’ll still be income producing. So if you need another 30 days or whatever to close, it’s not that you’re paying out of pocket because you didn’t vacate the property. So that’s probably another piece.

Patrick Grimes:
The other piece is some people have a hard time making the million mark or whatever. I’ve had other investors come along and, like I said, either put up some cash to help with the expenses or supplement that, supplement that with cash or retirement account funds or whatever else. You’re still solving a problem. So maybe they’re in this syndication for a piece and they’re in a 1031 for a piece. And the total amount is enough for me to be like, “Okay, I don’t have any hair left to pull out.” I’m bald if you can’t see, but thanks to my wife’s COVID cuts. She decided to just get it all off one day, but I don’t need hair.

Patrick Grimes:
But since you’re solving a problem for me of this piece, this chunk, then yeah, sure, we’ll do it. Let’s make it so. Just talk to your sponsor and be flexible. That’s probably the only other piece, but again, it’s a lot of information. If you set up a call, we’ll look at your specific situation. We’ll get the right people on the phone and see if we can help.

Dave Morgia:
Yeah, absolutely. And Patrick, I think I’d like to dig into these five key questions while we still have a little bit of time. So the first one here, if you could only pick one trait that explains your success, what is that trait and why?

Patrick Grimes:
Well, I would say probably persistence. I’ve been told my whole life that I’m a very persistent guy and probably, I have two master’s degrees while working full time with a background in machine design, automation and robotics. I took a big hit in the first downturn and still came out fighting in both my… In real estate, I took a hit and I came out fighting and kept after it. And I’d say the persistence in the space to just, even though it hit hard, wanted to keep going, had to make it work and pivot and all that stuff. That’s probably what I’d say.

Dave Morgia:
Yeah. That’s my most popular and favorite answer. The getting back up is the thing, long-term approach to it and you’ll make it out eventually. So yeah, I couldn’t agree more. And then what is the most uncharacteristic thing you have done in your business and why did you do it?

Patrick Grimes:
Well, let’s see. So I’d probably go maybe two different ways with that. Uncharacteristic for me would be actually being on this podcast right now, because I’m a high-tech guy. I mean, I’ve got a lot of high-tech friends and I’ve built a large reputation. And so I have significant investors coming from the high-tech space that are investing in automation projects. And I’ve started to develop… we have 80 passive investor videos that my wife has produced until now. And so here I am now uncharacteristically getting myself out there, getting out of my hobbit hole, leading up from my grinding wheel and meeting people. I’d say that’s probably for me, uncharacteristic, but here I am doing it.

Patrick Grimes:
We have the Amazon number-one bestseller book out now. And I’m a co-author on here along with the lead guitarist of Def Leppard, radio guys, Russell Gray, NFL, NBC, players and coaches, actors, entrepreneurs. It’s a really cool book, a lot of great stories, persistence, pivots and game changers. And I’ll ship you a signed copy of this if you go to our website and set up an introductory meeting and as a free welcome gift, we’ll ship this to you. It tells that story.

Dave Morgia:
Awesome. And then can you name a time, Patrick, where you felt like you weren’t going to end up successful and how did you overcome that fear?

Patrick Grimes:
Okay. Well, both in the high-tech space and real estate, I’ve had, but the biggest one for me was when I was starting out my engineering career, I saved up every penny I had. I go into the detail in my book and I wanted to get into real estate. The owner of the company I was working for was like, “Engineering is going to be cognitively rewarding and you’re going to have a great time, but it’s not going to give you the future that you want or you want for your kids and your family. Invest as much as you can as soon as you can into real estate.” And so I bought some land in a pre-development out of state, which was perfect track record by the developer. The market was never going to go down. And this was 2007.

Patrick Grimes:
I actually invested in 2006 and in 2007, ’08, ’09, ’10 just crashed. And you know, I was able to avoid bankruptcy, but I paid for a while, negotiated debt forgiveness, which only meant I had to pay income taxes on that debt forgiveness on the other side. My loan had been sold like three or four times at that point, and so I hit it hard. I lost a lot and it took me a while to crawl out of that.

Patrick Grimes:
Doubled down into my high-tech career and then came back out a completely different perspective for lower risk. The tortoise will outpace the hair, high risk adjusted returns and resilient markets that withstand recessions, low leveraged and long term, low interest rate deals that don’t have balloons. That’s what I’ve been doing, and it’s been working great.

Dave Morgia:
And then the next one, can you name a time where something in your business went perfectly and what did you do to make that a reality?

Patrick Grimes:
Well, so nothing ever goes perfectly, but I tend to resonate, I think, a little bit with Napoleon when he said he never won a war that went to plan, but never won a war he didn’t plan thoroughly. I’d say that when I made the transition to multifamily, it was rocky. It took about two and a half years, but my wife was there for my very last single-family closing. And I was no longer going to trade off my time with her, my time with my friends and my time with my hobbies outside of my engineering career for my investment portfolio. It was time to trade up and work with partners and scale.

Patrick Grimes:
After a lot of deals going wrong, a lot of underwriting, a lot of traveling, a lot of offers, a lot of investor calls, finally, when I got the first deal going, it was a little chaotic, right? I was working with partners that had been doing it for 20 years, still a little chaotic, a lot of moving cards. And then the second deal was on the heels of the first and I was flying around and chasing that.

Patrick Grimes:
It was on the third deal when I felt like we really got in the groove. It became much more of a rinse and repeat and things went much more smoothly. I had time, not only to get things done, to make the deal happen, but try some other things. We even created a little short movie trailer for that investment. It was kind of a cool time because I finally felt like, hey, look, we found something that works. Let’s just do this again and again and again. That was when I think that that particular time when things just felt like they went right and that was the path.

Dave Morgia:
Yeah. It goes back to that planning quote. You said, “You can definitely have a plan, but there’s going to be hurdles. That doesn’t mean you should not try to make as much of the process repeatable as possible.” So like you say, the third deal, the processes were kind of getting a little fleshed out better. You could start focusing on other channels of the business because you had the systems to do more of the bulk of the work. The last one here, what have you been focusing on lately to improve yourself or your business?

Patrick Grimes:
Yeah. I think a lot of my energy’s been one on one and with both, say, brokers and with investors and partners. I think that this year’s really that year where I’m building more of a thought leadership platform. I just did some public speaking talks. I’m doing some podcasts, going to start my own podcast. I did the Amazon number-one bestselling book, which I really poured out a lot of my story.

Patrick Grimes:
I’m getting great feedback with the Forbes stuff, and I’m sort of giving back to this space and getting my name out there. That’s what’s new for us. We got the right machine. Let’s just tell people about it and they’ll be drawn in, and they are.

Dave Morgia:
Yeah. You’re already on the right path with the book and the Forbes articles and being on the Forbes list. So yeah, I’m sure 2022 with the focus will yield great results in that regard. And I think you said what, this is the third of, I’m sure, many, many podcast interviews you’ll be doing over the next year. So yeah, looking forward to seeing all that, Patrick. But just wanted to thank you for coming on.

Dave Morgia:
1031, TICs is not something that everyone’s super keyed in on or even aware of, whether you’re someone who owns real estate to be able to actually 1031 yourself, or if you’re a sponsor, trying to figure out other ways to get some sophisticated funds into your deal. So just wanted to thank you for that. And before we do sign off, you want to just maybe give the listener one last way they can reach out to you? I know you mentioned the book, but is there any other way they’d be able to contact you today?

Patrick Grimes:
Yeah. So you can give me a call at 209-403-6096. If I don’t answer, my investor relations guy will. My email address is [email protected], invest on main and street, all spelled out, .com. And then check us out at investonmainstreet.com. Like I said, there’s a 1031 guide there. There’s a passive investor guide and we have our current deal offerings. We have actually one deal currently open for subscriptions.

Dave Morgia:
Awesome. Patrick, thanks so much for the time today.

Patrick Grimes:
Absolutely. I appreciate it. Thanks, Dave.

Dave Morgia:
Thank you for listening to the show. I don’t take your time and attention for granted and appreciate that you would spend it with me. If you enjoyed this show or any of my previous shows, it would be a huge help if you would rate and review the show on Apple Podcasts or your favorite podcasting service, or even just share the episode with a friend. And if you’d like help from me or would like to talk about real estate investing further, feel free to visit the show notes for more information, or you can visit davidtravis.com.

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